50% tax deductible costs - change in the rules of application from 2018
From January 1, 2018, the possibility of using 50% tax deductible costs will be limited to income from strictly defined types of creative activity. This change is unfavorable for many authors who have so far been able to benefit from preferential tax deductible costs, in addition, it may raise a number of interpretation doubts, and will also allow tax authorities to question the possibility of applying preferential costs in a given case more broadly than before. The good news is that the limit on applying 50% of tax deductible costs will be increased from the current PLN 42,764 to PLN 85,528.
The new provisions were included in the Act of 27 October 2017 amending the act on personal income tax, the act on corporate income tax and the act on flat-rate income tax on certain revenues earned by natural persons, by adding in art. 22 of the Personal Income Tax Act, para. 9b, which lists specific types of creative activity to which 50% tax deductible costs can be applied.
After the changes to 50%, the tax deductible costs will apply to the revenues obtained from the activities:
1) creative in the field of architecture, interior design, landscape architecture, town planning, literature, fine arts, music, photography, audiovisual works, computer programs, choreography, artistic violin making, folk art and journalism;
2) research and development as well as research and teaching;
3) artistic in the field of acting and stage art, theater and stage directing, dance and circus art, as well as in the field of conducting, vocal studies, instrumental studies, costume design, stage design;
4) in the field of audiovisual production of directors, scriptwriters, image and sound operators, editors, stuntmen;
The catalog of creative activity subject to the preferential tax deductible rate is closed and excludes many professions that so far have had the opportunity to benefit from preferential tax deductible costs, because they were entitled to every creator who, in accordance with the Act on Copyright and Related Rights, created a work and used copyrights , that is, he derived financial benefits from it.
Creative work under an employment contract - is 50% tax deductible still possible?
It is still possible to apply 50% of the tax deductible costs to employees. However, it should be remembered that it is the employer's responsibility to assess whether remuneration (or part of it) is due for copyrighted work. This distinction should result from the employment contract or other regulations applicable to the employer and his employees.
For the acceptance of the work and the related property rights, the employer pays the remuneration due - the so-called fee. The amount of this remuneration must be specified in the employment contract or in other provisions, which may be specified as a specific amount or a percentage of the total remuneration. There must always be clear grounds for using 50% of the tax deductible cost by indicating that it is all remuneration or a specific part of it. The employer is obliged to create a transparent mechanism to precisely determine the amount of the fee payable, i.e. remuneration for performing creative work or remuneration for disposing of proprietary copyrights by the creator.
50% tax deductible costs after the change of regulations - who loses the right?
If a given type of activity does not fit into the catalog listed in the amended Personal Income Tax Act (in the version in force from 2018), to which 50% of copyright costs may be applied, then the remuneration and possible disposal of copyrights to works, increased tax deductible costs cannot be used. So if the remuneration will come from:
from an employment contract - employee tax costs should be applied,
from a mandate contract or a specific specific work contract - 20% tax deductible costs are applied, and if costs are incurred at a higher value, it is possible to use them in the actual amount, provided that their amount is proven on the basis of the documents in hand,
only for the use or disposal of copyrights (e.g. license agreement, image sharing agreement, contract for the sale of proprietary copyrights, contract not to use moral rights), where the remuneration does not result from employment contracts, work, commission or similar contracts - the cost cannot be applied at all.
Explanations of the Ministry of Finance - change in the rules for applying 50% of tax deductible costs
The introduced changes have already caused quite a lot of confusion, and therefore the Ministry of Finance provided the first explanations. According to PAP, the press office of the Ministry of Finance explained that the possibility of using 50% of costs relates to revenues obtained from the use of copyright by authors and performers from related rights or their disposal of these rights. Therefore, this applies to gainful employment, to which the provisions of the Act on Copyright and Related Rights apply, while the provision added in the amendment lists areas of a creative nature covered by copyright costs and these areas correspond to the basic specification of works covered by copyright. The task of the representatives of the Ministry of Finance is not the profession that determines the entitlement to the discussed "cost preference", but the premise whether a work (work) will be created as part of this profession - for example, in a situation where a computer graphic designer or a translator of belles-lettres creates a work in the areas indicated in of the added provision, then costs at the level of 50% can be applied to the income obtained on this account.
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It seems that the biggest doubts are raised by the way of understanding "research and development as well as scientific and didactic creativity" included in the amended regulations. The Ministry of Science and Higher Education requested the Minister of Finance for clarification. The ambiguities concerned mainly the possibility of applying preferential tax-deductible costs by research workers who at the same time did not perform teaching activities. As explained by the Minister of Finance “(...) Pursuant to Art. 22 sec. 9 point 3 of the Act of July 26, 1991 on personal income tax - hereinafter "the PIT Act" - tax deductible costs (hereinafter "buy") for authors' use of copyright and related rights by authors and performers, within the meaning of separate regulations or the disposal of these rights by them amount to 50% of the obtained income ”.
On the other hand, pursuant to Art. 12 sec. 1 of the Act of February 4, 1994 on copyright and related rights, unless the law or the employment contract provide otherwise, the employer whose employee created the work as a result of performing duties under the employment relationship acquires, upon the acceptance of the work, economic copyrights within the limits of resulting from the purpose of the employment contract and the unanimous intention of the parties. The amendment to the PIT Act with regard to the application of 50% of purchases indicates the areas of creative nature covered by this provision. Therefore, pursuant to Art. 22 sec. 9b point 2 of the PIT Act (as amended from 2018), these costs will apply, inter alia, to revenues from research and development as well as research and teaching activities. Other regulations of the PIT Act in this respect have not changed and, as a consequence, the essence of the regulation, its subject and purpose remain valid. To sum up the discussed changes, starting from 2018, do not mean the loss of the right to apply 50% of tax deductible costs to those academic teachers referred to in Art. 108 of the Act - Law on Higher Education, who - regardless of their classification to a specific group - create works subject to copyright protection under the employment relationship.
Despite a fairly favorable position formulated by the Ministry of Finance, it is not known what the practice of tax authorities will be in the event of inspections. It can be expected that new disputes will arise regarding the application of preferential tax deductible costs in the taxation of the creator. Therefore, particular caution should be exercised when applying preferential tax deductible costs. A solution that may be chosen by some entrepreneurs will be to change the form of cooperation with authors, because it may turn out that, for example, self-employment will become a more attractive and tax-safer solution for both parties.